Incident: On April 29, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 89.902 billion yuan, +7.40% year-on-year; realized net profit to mother of 6.39 billion yuan, or -220.81% year-on-year. 2024Q1 achieved operating income of 21,842 billion yuan, +9.37% year over year; realized net profit to mother of 1,236 billion yuan (same period in 2023 - 2,749 million yuan), +55.04% year over year.
Comment:
With sufficient capital on hand, the farming business is expected to become profitable as the market recovers. The company's main business is livestock and poultry farming and sales, and auxiliary businesses such as slaughter, food processing, and veterinary medicine are carried out around upstream and downstream cooperation in its industrial chain. In 2023, the company's breeding business accounted for 97.7% of revenue, of which pig sales revenue accounted for 55.2% and broiler sales revenue accounted for 41.7%. Affected by the slump in the industry, the overall gross margin of the breeding business decreased by 27.2pct to 0.43%. Among them, gross sales margins for pork and broiler products were -3.74% (-21.2pct) and 5.31% (y-7.8pct year-on-year), respectively. With 2024Q1, the breeding industry has picked up. The broiler business achieved marginal profits, and the pig business lost about 900 million yuan; by the end of the first quarter, the company had available capital of about 11 billion yuan, and the operating capital and capital were sufficient.
Pig breeding: The results of improving production indicators and controlling breeding costs are quite obvious. In 2023, the company released 26.262 million pigs, +46.7% year-on-year, accounting for 3.6% of the total number of pigs released in the country, ranking second among peer-listed companies; the annual comprehensive breeding cost was about 16.6-16.8 yuan/kg, a year-on-year decrease of about 0.6 yuan/kg; the market rate of pork pigs was 92%, +2pct; PSY22.1, year-on-year. 2024Q1, 7.180 million pigs were released, +28.3% over the same period; the comprehensive cost of breeding was about 15.2 yuan/kg (about 14.8 yuan/kg in March), down about 1 yuan/kg from quarter to quarter; PSY increased to around 23 in March, basically achieving a single-head break-even. Thanks to good disease prevention and control capabilities, the company's core production indicators have continued to improve since 2024. It is expected that on the basis that the number of breeding sows is relatively stable, it may also achieve the target of 30 to 33 million pigs throughout the year, maintaining a year-on-year growth rate of more than double digits.
Broiler breeding: The cost advantage is obvious. In 2023, the company sold 1,183 million broilers, or +9.51% over the same period, accounting for 9.1% of the total number of broilers sold in the country, ranking first among listed companies; the full cost for the whole year was 13.6 yuan/kg, of which Q4 dropped to 13.0 yuan/kg. 2024Q1 sold a total of 167 million broilers, +0.2% over the same period; the full cost was about 12.8 yuan/kg, of which it dropped to about 12.6 yuan/kg in March; the marketing rate remained 94% to 95%, with a ratio of about 2.83 to meat. The company's core indicators of broiler farming have always remained at a high level, and marginal profits can still be achieved during the downturn in the industry. It is expected that in the future, under the influence of improved market conditions and continuous optimization of the company's costs, the company is expected to achieve a reasonable increase in profit.
Profit forecast and investment rating: We expect the company to achieve revenue of 1106.40, 1195.14, and 128.776 billion yuan in 2024-2026, and realized net profit of 55.99, 114.16, and 13.047 billion yuan respectively. Corresponding to 2025-2026 PE is 11.12 and 9.73x, maintaining the “recommended” rating.
Risk warning: risk of fluctuations in pig prices; risk of epidemic diseases in the breeding industry; production capacity release falls short of expectations.